Employee Ownership Works
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Why Employee Ownership?
Employee ownership serves as the foundation of businesses throughout the world, in almost every industry. Today, more than 18 million workers in the United States have some form of ownership stake in the place they work. Employee-owned businesses differ in that they are partially or fully owned by a broad group of employees instead of one or two owners or outside shareholders.
Some businesses are formed as employee-owned from the start. Other businesses convert to structures like worker-owned cooperatives or employee stock ownership plans (ESOPs) later on in their life cycle.
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What are Examples of Employee-Owned Companies?
Paragus Strategic IT
Paragus Strategic IT provides outsourced IT services to small and medium businesses in the Pioneer Valley. These services include help desk services, IT project services, security and compliance, and IT strategy. The company employs 50 full time people and switched to employee ownership in 2016.
PV Squared is a solar company that was founded as a worker-owned cooperative in 2002, with the goal of creating sustainable, living wage jobs to strengthen the local economy. Today, they serve as an example of how worker-ownership creates a culture of investment.
A Yard & A Half
A Yard & A Half is a landscaping cooperative based out of Waltham, Massachusetts. When founder Eileen Michaels was ready to retire, she chose to sell A Yard & A Half to her employees who have continued to grow the business and secure its long-term success.
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Competitive Advantage of
Employee-owned companies benefit from greater business resilience, improved business performance, and deeper economic and racial equity.
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Types of Employee Ownership:
There are several to ways to structure an employee-owned business. The most appropriate structure for a business transitioning to employee ownership depends on its size, profitability, and the goals of its owner(s). The two most common types of employee ownership are employee stock ownership plans (ESOPs) and Worker Cooperatives, described briefly below.
Employee Stock Ownership Plans (ESOPs)
An ESOP is a specialized stock bonus plan that is allowed to invest primarily in employer stock. ESOPs are governed by both the Internal Revenue Service and the Employment Retirement Income Security Act (ERISA). In an ESOP, workers do not own the stock of the company directly, but rather through a trust.
- ESOPs are the most common type of employee-owned company in the U.S.
- There are ESOP companies in virtually every industry with roughly 6,600 ESOPs employing 10.8 million workers.
- In an ESOP, all or part of the business is owned by the employees through a specialized retirement plan.
- Ownership of the company is held in a trust which holds employer stock, administered by a trustee for the benefit of the ESOP participants (employees).
- Tax benefits of an ESOP are significant. Properly structured companies can avoid paying any federal corporate income tax.
- ESOPs are usually set up to facilitate the sale of a company and use financial leverage, or borrowed money, to buy the company from the current owners.
- While ESOPs can benefit from significant tax savings, they can be costly to set up and maintain. In our feasibility assessment work with businesses, we assess whether the tax savings of an ESOP can outweigh its set up and maintenance costs.
For more information about ESOPs, review this resource.
A type of firm where the employees directly own and control the business on a democratic basis of “one person, one vote.” Typically all workers, including management, are eligible to be member owners after meeting certain requirements, including paying a membership fee. In a worker cooperative, ownership and control of the business are derived from working in the company, rather than from simply investing capital in it.
- A worker cooperative is a business owned and controlled by its employees, rather than by a single owner, several partners, or outside shareholders.
- Ownership of the business is shared equally among all employees who meet basic eligibility requirements (such as length of time with the company) and choose to buy into the company.
- From the outside, a worker cooperative often looks like any other business. While worker-owners who occupy different positions within the company’s hierarchy play a key role in oversight through the board, the management team is still responsible for daily operations (including setting schedules, hiring employees, etc).
- As ‘worker-owners’, employees share in the company’s annual profits and play an important role in decision-making by running for, or electing their fellow employees to, the company’s board of directors.
- In worker cooperatives, the board is made up of mostly (if not entirely) worker-owners. The board evaluates the general manager, approves the company’s annual budget, and determines how much money to distribute to worker-owners following a profitable year
- Any kind of business can be organized as a worker cooperative and there are hundreds of successful worker cooperatives found in many different sectors including house cleaning, food service, construction, child care, engineering, home care and more.
For more information about Worker Cooperatives, review this resource.
Hybrid Worker-Owned Firm
A type of firm that shares ownership with its employees. This can take on many forms and structures.
To learn more about these options, read our guide Types of Employee Ownership.
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Support our work to grow and sustain a strong network of employee-owned businesses in the Commonwealth.
MassCEO is administered by the ICA Group, a leading expert on worker ownership and the oldest national organization dedicated to the development of employee-owned companies.
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